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Covance's CEO Discusses Q1 2012 Results - Earnings Call Transcript

The benefit of the share repurchase program added approximately $0.02 to EPS in the quarter. The effective tax rate for the quarter was 21.6%, and we expect a similar effect of tax rate as we look ahead to the rest of 2012.

Now please turn to Slide 5. In the first quarter, Early Development contributed 40% of net revenue, and Late-Stage contributed 60%. Also in the first quarter, 51% of our revenue came from the U.S., 15% from Switzerland, 12% from U.K., 8% from countries in Eurozone and the remaining 14% from the rest of the world.

Now please turn to Slide 6 to discuss the segment results. In Early Development in the first quarter, net revenue was $212 million, a 5.5% year-on-year reduction, as declines in revenue in both our North American and European tox services, as well as our Discovery Support Services more than offset year-on-year growth in other services.

Sequentially, revenue declined $22.8 million, driven primarily by a sharp decline in volumes from our Global Toxicology Discovery Support Services, as demand from a number of our large clients was well below expectations. Revenue in our Discovery Support Services were also impacted by seasonal buying patterns in our contractual minimum volume agreement. In Clinical Pharmacology, revenues while up year-on-year were down sequentially on a higher-than-expected level of study delays and cancellations.

Operating income for the first quarter was $11.3 million, which was down significantly on both the year-on-year and sequential basis. We had expected operating margins for the first quarter in the low double-digit range, and actual operating margins at 5.3% were well below that expectation and compares to 13.9% last quarter and 11.9% in the first quarter of 2011. The decline in profitability, both year-on-year and sequentially, was driven primarily by the lower revenue levels in global toxicology and Discovery Support Services where operating margin drops here on the downside was very high, as well as weakness in clinical pharmacology services.

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